Expert panel report of SEBI on fair market conduct has been released.
What is the report about?
The Securities Exchange Board of India (SEBI) has been anointed with sweeping powers to haul up offenders.
But this has clearly failed to have a deterrent effect on the conduct of market players, with scams, frauds and accounting manipulations cropping up all too frequently at India Inc.
In this regard SEBI-appointed TK Viswanathan committee on fair market conduct has released its report.
What are the highlights of the committee report?
The report has reviewed key securities market laws in light of recent cases and contemporary practices, to suggest changes that can make them watertight.
The committee seeks to empower SEBI to act directly against a listed company, its directors and auditors where its books of accounts are falsified.
Rather than rely on provisions of the Companies Act, the committee has sensibly recommended that the SEBI Act be amended to allow SEBI to prosecute entities manipulating accounts.
The definition of fraudulent trades under the PFUTP rules has been widened to include front-running, orchestrated trades, circular trading and benchmark fixing.
Recognising that staffing constraints at SEBI often lead to long delays in enforcement actions, the committee suggests a special fast-track process for cases involving marquee names.
Whistle-blowers play a key role in alerting regulators to malpractice and the report recommends that SEBI, rather than the Central Government, be empowered to grant immunity to whistle-blowers.
What is the way forward?
The report's recommendations for SEBI has proved a far more proactive regulator than the Ministry of Corporate Affairs.
Few recommendations of the report could result in regulatory overreach.
This would include the suggestion to characterise trading by market players in excess of their ‘verifiable financial resources’ as fraud.
The other is granting SEBI the powers to intercept calls.
Overall, most of the committee’s recommendations are worth taking forward, and if implemented, can significantly raise the bar on the conduct of market players.
However, the sheer number of gaps flagged in the report also highlights the need for updates to securities market laws at more frequent intervals.
